IV. The accounting records of the Inversion Company at the beginning of 2016 for

Question

IV. The accounting records of the Inversion Company at the beginning of 2016 for account receivable is $32,000. The allowance for doubtful account has a Result Reviewer debit amount of 2,000. During 2016, sales on account amounted to $60,000, $56,000 was collected on outstanding receivables, and $1,600 of receivables were written off as uncollectible. On December 31, 2016, the company estimated its bad debts to be 4% of the outstanding gross accounts receivables balance. Required: prepare the journal entries necessary to record the company's estimated bad debt expense for 2016. (1) Calculate the account receivable at the end of 2016. (5 marks) (2) Calculate the estimation of bad debt expense for the year. (5 marks) (3) Prepare the journal entry to record the estimation of bad debt expense for 2016. (5 marks) (4) Prepare the journal entry to record the written -off the bad debt. (5

Explanation / Answer

Answer 1 Calculation of the accounts receivable at the end of 2016 Beginning Accounts Receivables as on 1.1.2016 $32,000.00 Add : Sales on account $60,000.00 Less : Collection from Accounts Receivables $56,000.00 Less : Amount written off $1,600.00 Ending Accounts Receivables as on 31.12.2016 $34,400.00 Answer 2 Allowance for doubtful account balance as on 31.12.16 would be = 4% of outstanding gross accounts receivables balance Allowance for doubtful account balance as on 31.12.16 would be = 4% * $34400 = $1376 The estimated bad debt expense for the year Allowance for doubtful account debit balance as on 1.1.16 $2,000.00 Add : Accounts Receivables written off $1,600.00 Add : Allowance for doubtful account credit balance as on 31.12.16 $1,376.00 Bad debt expense for the year $4,976.00 Answer 3 Journal entry to record the estimation of bad debt expense for 2016 Account Titles Debit Credit Bad debt Expense $4,976.00 Allowance for doubtful accounts $4,976.00 Answer 4 Journal entry to record the written off of bad debt Account Titles Debit Credit Allowance for doubtful accounts $1,600.00 Accounts Receivables $1,600.00

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